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Dinosaurs of the Dow

The Dow is often hailed as the gold standard of the U.S. equity markets. Anyone looking for a 30,000-ft. view of the markets simply asks, “Where’s the Dow?”

As Rodney points out, it’s highly unlikely that the entire Dow index would ever drop to zero. That said, any one of the index’s components certainly could. In fact, several nearly have.

Remember a company called Eastman Kodak? The company’s stock was worth over $30/share in 2004 – the same year it was dropped from the Dow Jones Industrial Average. The stock is worth about 39-cents on the over-the-counter market today. That’s a 98.7% drop.

And maybe you’ve heard of Citigroup? You would have ponied up more than $550 per share to own a piece of the financial giant in 2007. Two years later… the stock has lost 98.2% of its value and was also kicked out of the Dow-30.

Both Kodak and Citigroup are now just dinosaurs of the Dow.

The current Dow Jones Industrial Average is just 5% below the 2007 peak. But of the 30 stocks that make up the Dow, there is still at least one bad apple in the bunch – one that “doesn’t belong,” if you will…

Here’s Bank of America (NYSE:BAC) in terms of %-Change from October 2007:

As you can see, the stock has failed to regain 83% of the value lost since 2007. It never went to zero, but came close in 2009 at $2.53 a share… making for a 92% drop.

You’d think with a dismal performance like this, investors would have turned their backs on BAC. Not the case… trading in Bank of America’s stock accounted for 58% of pre-market volume this morning.

While Bank of America is attracting outsized transaction volume, interest in the Dow has dropped off since 2007. The average number of Dow shares traded each day was roughly 1.5 million in 2007. Recently, average daily volume has dropped to about 800,000.

This contraction in volume does not bode well for the Dow.

If you haven’t done so already read the Survive & Prosper issue on “The Fall of the Dow Jones Average“.

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.